Debt Overview Of General Motors
Shares of General Motors Inc. (NYSE: GM) increased by 31.57% in the past three months. Before we understand the importance of debt, let's look at how much debt General Motors has.
General Motors's Debt
Based on General Motors’s financial statement as of May 6, 2020, long-term debt is at $81.44 billion and current debt is at $45.06 billion, amounting to $126.50 billion in total debt. Adjusted for $38.51 billion in cash-equivalents, the company's net debt is at $87.99 billion.
Investors look at the debt-ratio to understand how much financial leverage a company has. General Motors has $246.62 billion in total assets, therefore making the debt-ratio 0.51. As a rule of thumb, a debt-ratio more than 1 indicates that a considerable portion of debt is funded by assets. A higher debt-ratio can also imply that the company might be putting itself at risk for default, if interest rates were to increase. However, debt-ratios vary widely across different industries. For example, a debt ratio of 25% might be higher for one industry, whereas normal for another.
Why Investors Look At Debt?
Debt is an important factor in the capital structure of a company, and can help it attain growth. Debt usually has a relatively lower financing cost than equity, which makes it an attractive option for executives.
However, interest-payment obligations can have an adverse impact on the cash-flow of the company. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.
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